Homework 2

Supply chain strategy, performance, drivers and demand forecasting

Morgan Culp 1/21/2010

Estimated time table for homework completion: Day Saturday 1.16 Sunday 1.17 Monday 1.18 Tuesday 1.19 Wednesday 1.20 Thursday 1.21 Goals Begin initial planning; read any parts of the book that contain information required to complete the work Finish questions 1 and 2, and all related sub-portions [time allocated for other activities] Examine Excel problems, determine feasibility based on existing skill set Complete any remaining Excel work, check formatting of assignment Assignment due

Actual time table for homework completion: Day Saturday 1.16 Goals Begin initial planning; read any parts of the book that contain information required to complete the work STATUS: Not completed, time other coursework took longer than expected + other factors Finish questions 1 and 2, and all related sub-portions STATUS: Partially completed, along with reading [time allocated for other activities] Examine Excel problems, determine feasibility based on existing skill set STATUS: Partially completed; Excel problems examined but not worked on to a satisfactory degree of completion Complete any remaining Excel work, check formatting of assignment STATUS: Partially completed; ran out of time to finish the last problem Assignment due

Sunday 1.17 Monday 1.18 Tuesday 1.19

Wednesday 1.20

Thursday 1.21

1. Amazon.com
PROBLEM: a) What is Amazon.coms supply chain? b) How would you characterize the competitive strategy of Amazon.com? What are the key customer needs that Amazon aims to fill? Where would you place the demand faced by Amazon on the implied demand uncertainty spectrum? Why? c) What level of responsiveness would be most appropriate for Amazons supply chain? What should this supply chain be able to do particularly well? d) How can Amazon expand the scope of strategic fit across the entire supply chain? PLAN: Completion of these problems will require minimal research, since Amazon is readily accessible. EXECUTION: a) Amazon.coms supply chain is estimated to look something like the following:

Amazon warehouse 1

Amazon warehouse 2

Amazon warehouse 3

Amazon partner

Customer

Amazon.com

Amazon partner

Amazon partner

Amazon.com connects customers directly to sellers, as well as offers products from the companys own warehouses. Amazon oversees the transactions more closely when products come from company warehouses, and does not facilitate shipping between buyers and individual sellers.

b) Amazons competitive strategy revolves around providing a very wide range of products to consumers easily and confidently. Amazon has earned a reputation as a trusted online retailer by upholding online security of customer data, providing an easy and powerful buying interface for customers and making sure products are shipped to customers in a timely manner. Since Amazon sells so many products with widely different demand curves and schedules, it is difficult to create one master demand function to describe the entire business. Instead, Amazons economists and demand forecasters likely break products down into categories (electronics, books and blu-ray/DVD, cosmetics, toys, etc) and develop demand functions based on the seasonal ebb and flow of sales of products in those categories. If I were placing the demand faced by Amazon.com as a whole on the IDU, I would place it roughly in the middle. This would account for both the stable goods that Amazon sells (books, music, etc) and the game-changing goods that Amazon may also pick up on (blu-ray players and media, new electronics, kitchen appliances, etc). c) The responsiveness of Amazons supply chain is likely to be marginally higher than that of a brick-and-mortar retailer such as Best Buy or Target. Because Amazon has no retail stores, it eliminates the need to ship products to many locations around the world. This means that products travel less and are less likely to be lost, damaged or delayed on the way to customers. One trip from the Amazon warehouse to the customer. d) Amazon can expand the scope of strategic fit across its entire supply chain by striving to have increasingly accurate demand forecasting. This way fewer, if any, shortages or surpluses will occur amongst goods in Amazons warehouses. The efficiency of the supply chain amongst individual sellers is largely out of Amazons control.

2. Toyota Motor Company

PROBLEM: a) What is Toyotas supply chain? b) How would you characterize the competitive strategy of Toyota? What are the key customer needs that Toyota aims to fill? Where would you place the demand faced by Toyota on the implied demand uncertainty spectrum? Why? c) What level of responsiveness would be most appropriate for Toyotas supply chain? What should this supply chain be able to do particularly well? d) How can Toyota expand the scope of strategic fit across the entire supply chain? e) How can the full set of six drivers be used to create strategic fit with Toyotas competitive strategy? EXECUTION: A) 1. Toyotas simplified supply chain likely resembles the diagram on the following page.

Customer

Raw materials 1

Raw materials 2

Dealer Manufacturing facility

Raw materials 3

Regional Toyota distributor

Raw materials 4

Raw materials 5

Customers visit a Toyota dealer, where they will either purchase a vehicle already present at the dealer or request to be notified when the vehicle they desire arrives. Since the manufacturing process is very complex compared to other simpler goods, the supply chain is not very flexible when it comes to adapting to large spikes in customer demand. Many hundreds of components go into the manufacture of one vehicle, and any disruption in the supply lines of any of those components could cause delays at the manufacturing facility. It is important therefore that Toyotas demand forecasting be especially meticulous so that the inevitable delays in the manufacturing process are minimized to the greatest extent possible.

2. Toyotas competitive strategy currently centers on supplying vehicles which are fuelefficient, aesthetically pleasing, mechanically sound and environmentally friendly. Toyota is a world leader in the sale of hybrid vehicles, using their vastly superior fuel economy to capture customers. Toyota vehicles continually lead in crash test performance as well as mechanical performance. Toyota is continuously improving its hybrid technology, and will soon be offering a battery system to increase the fuel economy of the popular Prius model to nearly 100 miles per gallon of fuel a first in the automotive industry. 3. The process of manufacturing automobiles is complex and requires many different components and raw materials. Even under perfect conditions, build time and distribution time often cannot satisfy customer demand. While Toyota strives to predict customer demand to the best of its ability, even when the predictions are nearly accurate can delays still occur. For this reason, the supply chain is not very responsive.

4. Until revolutionary new ways of manufacturing automobiles are developed which vastly decrease the time required to build one vehicle, Toyota is unlikely to see any major improvement along the zone of strategic fit.

B) How can the full set of six drivers be used to create strategic fit with Toyotas competitive strategy? a. Toyotas strategy of global complementation is one way of unifying the essential supply chain strategies to ensure that the company remains competitive on a global scale. By configuring manufacturing plants to be able to export products when local economic conditions are unfavorable and foreign economic conditions are booming, Toyota can ensure a more uniform supply of products to the markets which demand them. This type of load-balancing strategy is critical to reach as many customers as possible as quickly as possible.

3. Tahoe Salt
1. PROBLEM: Use Excel to work through the static forecasting for the Tahoe Salt problem. 2. PLAN: Fortunately, the formulas and Excel instructions are listed in the book. They will be used for this problem.

3. EXECUTION: Using the formulas listed in the book, the following spreadsheet was created.

Year Quarter 1 2 1 3 1 4 2 1 2 2 2 3 2 4 3 1 3 2 3 3 3 4 4 1

Period t 1 2 3 4 5 6 7 8 9 10 11 12

Demand Dt 8000 13000 23000 34000 10000 18000 23000 38000 12000 13000 32000 41000

Deseasonalized Demand

Deseasonalized demand (Dbar) 18963 19487 20011 20535 21059 21583 22107 22631 23155 23679 24203 24727

Seasonal factor 0.42 0.67 1.15 1.66 0.47 0.83 1.04 1.68 0.52 0.55 1.32 1.66

Final seasonal factor 0.471659044 0.683370264 1.17063748 1.66430967

19750 20625 21250 21750 22500 22125 22625 24125

Forecast 11867.97 17527 30769.83 44794.41

4. WORK CHECK: The formulas listed in the book reproduce the same results as the table in the book.

5. RESULTS and CONCLUSIONS: Excel is a very powerful and easy tool for computing these types of problems. It is most helpful to have the rather convoluted equations formatted as simple cell formulas.

4. ABC Corporation
1. PROBLEM: Use the Static Method to forecast the demand for ABC Corporation 2. PLAN: The Static Method is not very complicated; the ABC Corp. data will be plugged into an existing spreadsheet used in another problem (which will calculate the forecast as per the Static Method). 3. EXECUTION: